Will Europeans soon be exchanging digital euros?

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Will Europeans soon be exchanging digital euros?


the European Central Bank is launching a public consultation on a digital currency on Monday. A site boosted by the coronavirus pandemic.


The main risk is the flight of savers to the digital euro, which would avoid the costs of a traditional deposit account, which would weaken banks.


© AFP
The main risk is the flight of savers to the digital euro, which would avoid the costs of a traditional deposit account, which would weaken banks.


Will citizens of the European Union ever exchange digital euros? To decide, the European Central Bank (ECB) is launching a public consultation and a series of tests on Monday.

The idea of ​​a digital currency issued by the Central Bank has gained momentum with the pandemic and the development of dematerialized payments.

Digital wallet

The “digital” euro would be an electronic form of central bank money, existing alongside cash. Individuals and businesses could store these currencies in a “digital wallet”. It is envisaged that they could deposit this currency directly with the central bank, access to which has so far been restricted to commercial banks. It “would allow everyone to make daily payments quickly, easily, and securely,” says the ECB in a recent report.

Its promoters argue that transactions would be much faster, even instantaneous, because they do not require interbank settlement, and therefore available 24/7.

Its mechanism could be based on blockchain technology (blockchains, a computer protocol reputed to be tamper-proof), on which virtual currencies like bitcoin are already based, but without the volatility of crypto-currencies.

Electrochoc du Libra

The ECB wants to support the explosion of dematerialized payments, which has amplified with the Covid-19 pandemic. Even in Germany, a country where cash has long been king, in 2020 consumers spent more money on cards for the first time.

The ECB fears that this craze will benefit private virtual currencies or foreign currencies. In 2019, Facebook’s plan to create a virtual currency, Libra, “precipitated central banks’ thinking,” says Frederik Ducrozet, expert at Pictet Wealth Management. In addition, several countries like China or the United States have started to seriously consider issuing their own cryptocurrency, pushing the ECB to organize a response.

The chairman of the working group, Fabio Panetta, believes that a digital euro would strengthen the financial sovereignty of the EU. This digital euro would also be a new channel for the monetary policies of the central bank which would have direct access to citizens and could therefore, in particular by setting a rate of remuneration, “directly stimulate household consumption or business investment” , writes the ECB.

Safeguards to be defined

The main risk is the flight of savers to this new form of currency, which avoids the costs of a traditional deposit account, which would weaken the banks in the euro zone. A risk that is all the more important “in a period of crisis”, where savers, defying vis-à-vis the banking system, could convert their current accounts, according to the ECB.

To avoid this pitfall, the institute proposes in particular to limit the number of digital euros that everyone could own or exchange. In addition, “what is the desired level of anonymity? It affects both respect for private life and the fight against money laundering, which are equally legitimate objectives of society. It is not for central banks to say which is more important. We therefore need a political discussion, ”said in a recent interview Benoît Coeuré, former member of the ECB’s executive board and director of the technological innovation center of the Bank for International Settlements (BIS).

Soon in the wallet?

The consultation, intended to determine the expectations of the general public, the financial sector and institutions, will last three months. “Tests” will be carried out for six months. The ECB will then decide “around mid-2021” whether or not to start the digital euro.

But even in the event of a green light, it will then take “between 18 months and up to 3 or 4 years” to see the initiative materialize, according to a source close to the project.

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